Published in the ECHO Journal, January 2012
Sometimes it requires a leap of faith in coming up with ways to save money for homeowner associations (HOAs). That’s what Dave Rosenblatt, an association manager with Common Interest Management Services, learned as he embarked on a new energy conservation project for the Greenwood Condominium Community in Walnut Creek. Continually rising utility bills for the 301-unit, 3-story condominium complex, situated on 7 acres of beautifully landscaped grounds, caused the HOA to consider all cost saving measures. Rosenblatt had just the spirit needed (especially since the final outcome was far from guaranteed) to lead the HOA toward a project involving significant energy conservation measures. In addition, the board of directors for the HOA was made up of innovative thinkers, so that Dave’s ideas were well received.
While the “Green Energy” market is blossoming, there are still many unknowns for the consumer. Where do we start? What are the necessary tools? What contractor should we use? How much will it cost? Should one lease or purchase? It is the intent of this article to provide a few answers.
Dave started on this journey by contacting Energysmart Solutions, a general building contractor based in Walnut Creek, California, who specializes in energy saving solutions. After a few meetings, it was decided that the HOA would conduct a General Energy Audit. This audit is a process where specific components of the building envelope are measured. The components included in the audit consist of: framing insulation at the exterior walls, attic and under-floor, water piping insulation, fenestration rating (which tells how well the windows resist heat transfer), the insulation and sealants around openings to the building envelope (doors, windows, vents etc.), heating and cooling capacity, and all importantly, the lighting demands. The report not only assessed the current components condition but also suggested improvements with an estimate of the consequential energy savings.
One might correctly think that such an audit could lead to a mountain of work to be done and still leave the clients scratching their heads wondering, “What’s next?” In this case, Energysmart proved to be an important asset by providing suggestions along with carefully prepared estimates. They partnered with Rayco Energy, also a general building contractor out of San Jose, who was available to manage the project and complete all the installations. The audit report revealed that a substantial savings would result by taking on the house (or common area) lighting and electrical demands and installing microprocessors, which work with the aquastats, to regulate fuel consumption at the building boilers. Consider just the common area electrical demands of a community such as Greenwood. They have exterior lighting for pathways, security and parking, and inside the buildings are the hallway lighting and the heating and cooling electrical requirements. Tackling these “pacmen” of energy consumption was a challenging but huge step in the right direction.
The audit report provided the information about what tools would be needed: the installation of a photovoltaic system to power the electrical demands of the house lighting and HVAC; replacing all fluorescent bulbs with LED bulbs; and installing a microprocessor control mechanism on the building boilers. With a path defined and a developing team to carry it through, it would seem that the hardest step was complete. But the biggest hurdle was still ahead.
When Dave approached several non-industry financial institutions, he met a surprising and unforeseen hindrance; “Most of these folks didn’t know what an HOA was” he explained, so Dave had the difficult and time-consuming task of educating them. Those lending institutions he had previously worked with tended to consider the proposed improvements as a capital project; one that should be funded by special assessment. Although these banks understood the financial structure of an HOA, they also wanted to finance each endeavor separately; that is, finance the photovoltaic first, then finance the light bulb replacement and finally finance the microprocessors for the building boilers. While this meant more money for the lender, it certainly didn’t meet the cost saving objectives for the HOA. “Actually,” Dave explained, “obtaining the financing was the longest process of all!” Amidst the quandary of how to finance this project (now estimated to cost approximately $900,000), Energysmart Solutions owner Gahl Levy offered what was needed; someone with a comprehensive understanding of HOAs and their financial structure as well as extensive contacts in the lending world. With his expertise, a single lender was found—one that would finance the project as a whole.
Also involved with the process of gaining the approval of the homeowners and navigating the financial and legal challenges was Berding & Weil, the legal counsel for Greenwood Condominiums. In a complicated process such as this, it’s important to have an attorney that has extensive experience with CC&R analysis and can assist in the process of evaluating a range of funding mechanisms such as bank loans and special assessments to help Greenwood determine the best fit, as well as drafting contracts and equipment leases for a large construction project such as this.
Berding & Weil attorney Melissa Ward worked closely with Dave during the process of obtaining member approval for the project, securing financing and putting together solid contract terms for the association. Melissa stated that, “My job was two-fold: (1) to protect the association’s interest by aligning the legal requirements for each part of the deal with the governing documents, and (2) to help make the overall project and its many moving parts work.” For example, one of the early options considered was an equipment lease through a US Department of Energy grant program. That program was not designed for HOAs, however, and Melissa determined that while it looked good at first, many of the requirements didn’t fit well with Greenwood’s needs and would result in substantial long-term risks to the association. As a result, Greenwood returned to the much better fit of a loan option. Melissa provided the board with a detailed long-term risk analysis regarding the project and also drafted the member information packet, voting materials and construction contract.
The final loan obtained was a 15 year, fully amortized agreement with payments averaging $8,200.00 per month. This was $700.00 less than the average monthly PG&E bill for the association.
What exactly is photovoltaic? Why Replace Light Bulbs and how do those Microprocessors Work?
A photovoltaic (PV) system is comprised of solar modules linked to create arrays that convert the collected sun’s energy to a direct electrical current (D.C.). In order to convert this power to one that can be utilized by our buildings and electrical circuitry, inverters are installed to invert this D.C. power to A.C. (alternating current). In a system that is connected to the grid, such as Greenwood, this A.C. power is delivered to the “house meter” causing (depending on the load at the given time) the meter to move much slower, stand still and yes, even roll backwards. That backwards motion is power going back to the utility provider, in this case PG&E; and yes, that power does have a value. While California is not quite up to par with much of Europe and the state of New Jersey, which allows these credits to be traded as fair marketing commodities, it still is a credit to the system owner even if it’s out of PG&E’s store. It is important to note here that Greenwood HOA wisely opted to purchase their system, not lease it. Many companies offer leasing programs that eliminate the challenge of obtaining financing, but at the same time they also eliminate the benefits of owning, such as utility and tax credits. This is an important consideration.
Another benefit of owning the equipment is the ability of the owner to negotiate the rate schedule with the utility provider with the understanding that the rate the utility provider sells each kilowatt hour is the rate that the utility provider must pay to buy back the kilowatt hour. The rate schedule that the system owner has negotiated with PG&E is locked in for a given period of time, (in the case of Greenwood HOA, the rate schedule is locked in for the 15 year life of the loan). Rate schedules cannot be arbitrarily changed as proposed modifications are subject to review by the Public Utility Commission. The rate schedule will typically have a premium price for peak hour usage and minimal price for off peak hour usage. If the utility provider buys the electricity at the rate of $0.23 per kilowatt hour during the peak hours, that value stays with the kilowatt hours purchased. So when the property buys back power during the off peak times, they have the benefit of significantly more kilowatt hours available because they are purchasing back their hours at a reduced rate.
Practically speaking, during the summer months and during the peak demand hours of the day, the photovoltaic system will likely produce more energy than it can use. PG&E purchases the excess at the peak hour rate (say $0.23). Then during the off peak times, when the property must rely on PG&E’s provision of power, the cost is at a lower off-peak rate (say $.06). For example, in a given 24 hour period, let’s say the system produced an excess of 87 kilowatt hours during the peak period. At the rate which that power is sold to PG&E (who uses it elsewhere), it’s worth $20.00. During the off peak time those 87 peak kilowatt hours are now worth 333 non-peak kilowatt hours. This creates the potential of one day’s peak sale to PG&E offsetting several days of off peak usage.
Below is a graph that demonstrates how the photovoltaic system will affect the overall energy costs for Greenwood HOA. This graph represents the anticipated savings once all the PV systems are up and running.
Why should they replace the light bulbs as part of this project? Have you noticed how difficult it is these days to get incandescent bulbs? Soon, they won’t be available to consumers. Fluorescent lights, which demand considerably less energy to operate, are rapidly replacing incandescent. While the lifetime of the fluorescent bulb is an improvement to the incandescent (8,000 hours vs. 1,200 hours), the quality of lighting is quite variable. Fluorescent lighting also contains mercury which represents a hazardous waste for disposal. Remember, when thinking GREEN for building components, one need to consider the longevity along with the end use (or disposal) aspects of the component.
As a viable alternative, LED (Light Emitting Diode) lighting is now available. These lamps will have a lifetime of approximately 50,000 hours and also take much less energy to activate and sustain (6 – 8 watts per unit of lumen). Comparing the incandescent and the fluorescent, the watts per unit of lumen are 60 and 14 watts respectively. It is also of interest to note that the carbon footprint of a building can be significantly decreased (around 85%) with the use of LED lighting. For example, one kilowatt-hour of electricity will generate 1.34 pounds (610 g) of CO2 emission. Assuming the average light bulb is on for 10 hours a day, one 40-watt incandescent bulb will generate 196 pounds (89 kg) of CO2 emission per year. The 6-watt LED equivalent, however, will only generate 30 pounds (14 kg) of CO2 over the same time period.
One drawback with LED bulbs is the fact they are initially more expensive to purchase than fluorescent; however, their longer lifespan and reduced energy costs more than pay for that initial investment. Another drawback to the LED bulbs is that they are primarily a source of direct lighting so ambient lighting or flood lighting can be difficult to achieve. Greenwood HOA experienced this problem when they had difficulty in achieving enough flood light for use of the security camera in one of their parking areas. After an exhaustive search, the right LED bulb was found and the camera works just fine.
Do commercial boilers already come with their own aquastat? If so, why spend money for new processors to do the job the aquastat is supposed to do? The microprocessor control mechanism acts as a gas regulator that will adjust the boiler burners for the peak hours of operation. One of the significant challenges an HOA faces is the maintenance and upkeep of aging equipment. While new and “state of the art building boilers” may offer high end aquastats, the boilers at Greenwood HOA did not. The microprocessor installed for this project acts in unison with the existing aquastat, which has the job of maintaining the temperature in the boilers within a specific range. The existing aquastats work 24/7, are not programmable and typically do not detect peak hours of demand. By installing these new processors, the amount of times the boiler “fires up” is less and fuel savings are realized. The manufacturer of the particular processor Greenwood installed guarantees a 10% fuel savings, although it is likely that the fuel savings will be more in the area of 15% to 20%. The HOA is anticipating an approximate $8,000 annual savings from installing these microprocessors.
The Nuts and Bolts of Installation
As long-time industry consultants, we have a tendency to approach new ideas with a bit of skepticism. One question we had was, “How will the solar panels be attached without compromising the waterproof integrity of the roof and still resist wind uplift?” We were impressed with the result. The attachment on sloped roofs is simply made to the framing members (roof rafters) with necessary frequency. The anchor itself is composed of an 11” by 14” flat stainless or galvanized steel sheet that is slid in between the laps of the shingles. The size of the sheet provides adequate lap for the up and down slope shingle. The anchor is situated inside a 1” raised receptor that is welded to the sheet metal. The anchor (a 3” lag bolt) goes inside this receptor for seating at the bottom with a rubber gasket and steel washer. A compatible sealant is used when installing the lag bolts.
But “what about the built-up (flat) roofs?” we asked. Well, the answer for the horizontal surfaced roofs is to create no roof penetrations in the first place by instead using concrete blocks to act as ballast whose weight will hold the panels to the roof. This provides a system that can be easily removed for roof replacement or repair and certainly eliminates the concern of leaks caused by mechanical attachments.
The California Electrical Code does have several code requirements for photovoltaic systems. Sections 690 and 705 have requirements that are consistent with just about all electrical installs. Clear labeling is required; ground fault protection is also required. The breakers that are found on the utility connected inverters will need to handle back-feed, that is power going bi-directionally, and the short circuit rating of the main disconnect panel must account for the PV system as well as the utility supplied power.
Projected Cost of Improvements & Savings Generated
A photovoltaic system will cost about $6.00 to $7.00 per watt. At Greenwood HOA, a 108 Kilowatt photovoltaic system was installed, which translates to approximately 15 KW per building.
There were 1,035 new LED bulbs installed throughout the complex, with the final cost of such determined by the type of fixture. For a significant portion, the installation of the new LED bulbs was done using the existing fixtures. Typically, the use of existing fixtures (in this case ones that held both incandescent and compact fluorescent) is achievable. In some cases the fixtures require a change-out to accommodate the new lighting, which understandably presents an added expense.
When all is said and done, what is the anticipated cost of the improvements to Greenwood HOA and what are the anticipated savings? It is expected that the annual savings to the HOA will be approximately $68,000 in utility billing and approximately $17,000 in maintenance costs. The projected 25 year savings (based on current system efficiency which may diminish somewhat as the panels’ age) will be about 2.2 million. Because the equipment has only recently been installed, there is little data for evaluating the billing; however, one utility bill has already been received. For a building that previously averaged $850.00 per month, this recently received bill (with the PV system operational) was $3.76.
Currently, for qualified properties, there are rebates and tax deductions available to property owners who install energy-saving measures. A good resource for learning about these incentives is the Go California website.
As an additional incentive, it was determined that under the Nonbusiness Energy Property Credit (NBEP), each unit owner will be eligible to obtain a tax credit of up to $1,500.00 from the federal government. The amount of the credit (not a cash rebate) is proportional to the cost of the improvements. So for Greenwood HOA, each unit owner will qualify for a credit up to $750.00. This credit is extended to each unit owner (rather than to the HOA) because the unit owners are the actual owners of the system. Form 5695 from the Department of the Treasury, Internal Revenue Service provides details regarding these tax credits.
Regarding the efficiency of the installation in general, the spring, summer and fall months will be the most productive for the PV system. This is why the placement of the roof mounted panels is so critical. Greenwood HOA has beautiful redwood trees throughout the complex. Part of the General Audit was to evaluate the shade factor of these trees and how much actual real estate would be available given their location. A primary focus was to install the solar arrays in such a way as to avoid any “trimming” of trees but still provide the most power possible. One of the ways that the contractor achieved this was to install some of the arrays on the sloped roofs in a reverse tilt fashion. This presented an additional wind uplift concern that was addressed with minor engineered modifications to the fastening system.
There is a savings on maintenance costs as well. Replacing bulbs will be done much less frequently. In addition, part of the contract Rayco Energy has with Greenwood HOA includes maintenance of the panels for the first 10 years. Maintenance typically involves keeping them clean and performing visual inspections of the wiring, terminations and equipment fastening. As far as product and installation warranties, the contractor offers a one year labor and product warranty on the LED lighting, after which the manufacturer’s products warranty, takes effect. Additionally, for the entire solar system, the contractor offers an initial 10 year labor and product warranty, which is then followed by the manufacturer’s warranty.
The manufacturers will cover the solar modules with a 5 year material and workmanship warranty as well as a 25-year transferable power output warranty, (90% at 10 years and 80% at 25 years). The inverters come with a warranty of 5 years with an optional 10, 15 or 20 year extended service agreement. Finally, the microprocessors have a 15 year limited warranty against breakdowns or defects.
In effect, perhaps the biggest saving of all is that Greenwood HOA is doing its part to minimize their footprint on the world…something that we all need to consider.
 Graph provided by Rayco Energy based on estimated savings
 “US Department of Energy EIA: Electricity Emission Factors”. http://www.eia.doe.gov/oiaf/1605/emission factors.html Retrieved 2011-08-04
Susan Spott is a Construction Consultant with Richard Avelar & Associates. She is a certified Green Point Rater for new construction and has over twenty years of experience as a construction inspector, construction manager and construction contract administrator. Ken Kosloff is a Principal Senior Construction Consultant with Richard Avelar and Associates. He has worked extensively with community associations performing reserve studies and both construction and project management. Richard Avelar and Associates ate members of ECHO.